Coalition pledges pension reform

published 5 June 2014

The Coalition has announced its last legislative programme of this parliament. The measures announced in the Queen's Speech included a charge on plastic bags in supermarkets, and some tweaks to childcare legislation and the planning system.

The speech also contained two pension reforms. As announced in the Budget, savers will have greater freedom on how they can manage their pension pots, while the government is also legislating for the introduction ofDutch-style Collective Defined Contribution (CDC) funds, where employees across a company pool their savings and invest them together, rather than saving in an individual pot.

What the commentators said

Those who have saved into a pensionall their working lives "will no longerbe ripped off sorry, be forced to buyan annuity in a market fixed by insurance companies". This allows individuals to choose what to do with their retirement fund.

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The future of CDC schemes, on the other hand, is unclear. On the plus side, said Alistair Osborne in The Times, if members pool their savings, they should reduce their exposure to market volatility and cut management costs. There is no need for an annuity as the pension is paid out of the same overall pot.

However, not only can returns disappoint, leading to cuts in benefit levels as we have seen in Holland, but the young tend to cross-subsidise the old. They may be asked to make bigger contributions to maintain older members' benefits.

Ultimately, said Allister Heath, itseems hard to get excited about ascheme where you simply have "pension rights that depend on investment performance", rather than a pot of your own money.

However, the policy of auto-enrolment in occupational pensions of the past few years is proving very successful. On balance, "after years of political vandalism, UK pensions are on the mend".

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.